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KPMG calls time on the universal banking model

Geopolitical shifts and increasing protectionism among nations will mean that the universal banking model is no longer sustainable – and there is little that anyone can do, according to Bill Michael, EMA head of financial services at KPMG.

“The future shape of banking is beyond the control of boards, individual regulators or countries alone,” Michael told the British Bankers’ Association’s annual conference in London. “There is a new trajectory and it is one where universal banking doesn’t exist as it does today, where retail and investment banking may be split and where the interests of countries, and their banks, come first.”

Michael said that the fragmentation of large global banks is not necessarily a bad thing: they will continue to thrive for a while, but they are “becoming unmanageable and uncontrollable”. In the future, he said, “banking will become dull – and dull will be the new good.”

The new nationalism that is emerging around the world is one of the factors driving this. “Banks are just as important to countries as national defence. And just like national defence, one size does not fit all and the mantra of a level playing field may not be relevant,” he said. “As the philosophy of ‘country-first’ takes hold, global banks will be forced to become less global. A world where nations come first is not a comfortable place to be for global banks.”

For some customers, this could be a good thing, as banks are forced to focus more on their needs, “but it will also mean large universal banks must fundamentally restructure their business, which could include major divestments and exiting geographies or products”.

On the retail front, the outcome may not be for the overall good, Michael said. Historic reviews of mis-selling such as Payment Protection Insurance in the UK, are in danger of overwhelming the industry.

“Retail banking is being dominated by ‘back-book reviews’ of mis-selling. While the goal of these reviews is noble, there is no end in sight. We now run the risk of harming the very people we aim to protect – the customers,” he said. “Customers already have access to fewer pensions and investment products as a direct result. For SME customers – the lifeblood of the economy – access to funding at acceptable pricing is increasingly difficult.”

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